By Celestine Ajayi
In a bid to bring sanity to the Nigerian Stock Exchange, NSE, the exchange at the weekend reeled out an amended regulatory framework which brings tougher rules and sanctions against diversion of investors’ funds, unauthorised use of their deposits, and mingling of investors’ funds with others.
According to the new rules, a stockbroking firm or dealing member is warned against delivering the proceeds of the sale of a client’s securities or transfer a part or all of the client’s balance to a third party.
Any stockbroking firm or dealing member that contravenes the rule shall be required to restore the client’s stockbroking account to its original state, and pay a minimum fine of N250, 000 and/or face suspension from trading on the floors of the Exchange for a period to be determined by the Exchange.
Also, the amended framework has made it illegal for stockbrokers to bring non-stockbroking disputes involving clients or other non-contractual relationships into stockbroking and dealing on the Exchange as well as mingle investors’ funds with stockbroking firm’s operational funds.
Under the amendments, dealing member shall not withdraw or transfer a customer’s funds from a bank account designated as the client’s bank account, or operates such other bank account for any transaction other than for buying and selling of securities on behalf of its clients or in any manner contrary to the new provisions. A first-time offender under this rule shall be warned, a second-time offender is subjected to a minimum fine of N500,000 while in the case of a subsequent offender, the dealing member shall be suspended from trading on the floors of the Exchange for not less than five business days and pay a minimum fine of N500,000.
Stockbroking firms are prohibited from withdrawing or transferring customer funds from the customer accounts for settling any transaction by the dealing member as principal, or for settling any business debt of the dealing member.
According to the rules, no money shall be drawn from a customer’s account other than cash properly required for payment by or on behalf of a customer in connection with debts due from the customer to the dealing member for liabilities arising from trades executed on for the customer or in satisfaction of margin calls or other customer obligations.
Also, no money shall be drawn from a customers’ account other than one for paying a customer upon a request by the customer as well as money belonging to the dealing member which may have been paid into the customer’s account.
The Exchange is also tightening its inspection and surveillance by blocking regulatory loopholes being exploited to frustrate inspection.
Under the rules, every dealing member shall keep proper accounts on its stockbroking transactions. Now, the Exchange has further defined its inspectorate mandate and stipulated fines.
Where a dealing member fails to produce records of accounts requested during an examination or inspection, the dealing member shall be suspended from trading on the floors until the information is provided, and in addition to the suspension, the Exchange may impose a fine not exceeding N50, 000 payable within five business days, for any violation of the rules on cooperating with inspectors and examiners.
Clearly, the Exchange stated that a stockbroking firm or dealing member “shall be deemed not to have cooperated fully and promptly during an examination or investigation where the dealing member engages in any or all of the following actions, which include falsification or alteration of business policies and non-financial information; misrepresentation in or delay in providing information related to the examination as stated in the notice of examination; inability to provide books and records within the specified timeframe of the onsite examination or inability to indicate when they would be produced and concealing information relating to any aspect of the examination or investigation”.
“Where a dealing member fails to cooperate fully with an examiner during the conduct of an examination in line with the above, the firm shall be immediately suspended from trading on the floors of the Exchange until full cooperation is provided.
“In addition to the suspension, the Exchange shall impose a fine not exceeding N50, 000 payable within five business days;
“Where a dealing member fails to pay the prescribed fine in sub-rule (c) above within the specified period, such dealing member shall be liable to a further fine not exceeding N500, 000,” the amended framework stated.